The idea “Digital Transformation” was brought to the fore less than a decade ago as a catchall phrase denoting the need for organizations to implement vast changes that shed old, analog processes alongside adoption of a digital nerve center. As with all such ideas, there is both merit and exaggeration in its expression, at least as it’s articulated by many of its exponents.
On the one hand, the technologies available today are unprecedented and powerful, while on the other, the notion of technology as an automatic game-changer is a staple of the valley PR machine – despite being off the mark.
In our experience, no universalisms hold true in the world of business; everything is contextual. In addition, there is always room for improvement and growth. In the financial services space, both of these are plainly true.
One of us has co-founded a platform software company in Fintech and one offers consulting and technology deployment solutions to financial services (and other) companies. The third author is a technology marketer in proptech, an exciting sub-area of fintech.
The contextual, contingent nature of business requires us to take a flexible platforms-based approach to financial services. Interestingly, “finserv” has always been technology-forward; it is well known that finserv CIOs have had enormous technology budgets. For good reason – financial products and services are for the most part “constructions” of technology and the sector itself is dependent more than almost any other on security, privacy, governance, compliance, and generally a rules-based regime. As such, technology plays a key role in finserv.
We caveat this only with the observation that there is an entire world of analog financial services in the developing world and in progressing areas of developed countries– in the form of barter, small transactions, underground economies and even crime.
Despite this technology forwardness, digital transformation has a place in financial services. Aligning all parties to a transaction in a transparent, secure, and speedy way is crucial in the smooth flow of the financial economy. The ability to add new scenarios and features to a digital infrastructure (or platform) is equally crucial. Further, there are massive cultural changes that need to be made.
Take the world of asset management as an example — estimates are that $120 trillion is managed by asset managers world-wide. Of this, likely about $30 trillion is managed on Excel.
This is not a long-term solution. Excel provides good short term benefits of ease of use but creates long term challenges on quality of data and reporting, security, accuracy and authenticity of data. In proptech, much of the house buying and selling process requires physical meetings, appraisals, and the like despite the benefits of digitization. In these contexts, platform-based digital transformation in fintech are absolutely key.
Many entrepreneurs have heeded this call and built finserv companies to address this need. Unfortunately many have come up short. Point solutions can solve a particular problem well, but they can’t address the system changes that are part and parcel of Digital Transformation.
Unfortunately, most new ideas are just that: point solutions. They are easier to build, take less time for gestation, and have a much shorter sales cycle than platforms, but they often create larger problems than they solve.
This is not a screed; it is a plea.
We believe that fintech, in all of its various permutations is a powerful area of the economy and can offer bountiful rewards for businesses and consumers. But it starts with the platform.